Transamerica CI Balanced Portfolio Portfolio Review Third Quarter 2013
Transamerica CI Balanced Portfolio Portfolio Managers Economic Overview After sending signals earlier this year that it would be scaling back its economic stimulus efforts, the U.S. Federal Reserve announced in September that it would be standing pat, citing a string of uninspiring U.S. jobs and economic data. The yield for the U.S. 10-year Treasury bond rose to nearly 3.0% in advance of the Fed s announcement, but fell back to about 2.7% following the change in guidance. The Bank of Canada also left rates unchanged, but Governor Stephen Poloz had a more upbeat outlook, citing growing confidence in the Canadian economy. Prices for interest-sensitive asset classes, including government bonds, investment-grade and high-yield corporate bonds, and real estate investment trusts, had declined sharply over the summer with the prospect of higher interest rates before rebounding somewhat late in the third quarter. Canadian equities, as represented by the S&P/TSX Composite Index, posted a 6.3% gain for the quarter, as the U.S. Fed s announcement that it would continue its stimulus plans briefly boosted the index to a two-year high. Although the materials sector had been deeply negative as a result of poor commodity prices and rising costs for most of the year, stock prices rose late in the third quarter on a more optimistic outlook. The health care, consumer discretionary, and financial sectors led the market with the strongest gains, while the utilities sector was the only one to have a negative return. Meanwhile, U.S. stocks, as reflected by the S&P 500 Index, finished the period with a 3.0% gain in Canadian dollar terms. Despite ongoing political and fiscal issues in the Eurozone during the quarter, equity indexes rose in Germany, France and England. Japan s Nikkei Index rose 5.7%. Other Asian markets, including China, Hong Kong and South Korea, also had positive returns. The MSCI World Index gained 6.0% in Canadian dollars. Underlying Fund Allocations Aegon Capital Management Canadian Bond Pool 19.4% Signature Global Bond Fund 7.1% Signature Select Canadian Corporate Class 6.0% CI International Value Corporate Class 5.4% Cambridge Canadian Equity Corporate Class 5.2% CI Canadian Investment Corporate Class 5.2% Signature International Corporate Class 5.2% Signature Diversified Yield II Fund 4.9% CI American Value Corporate Class 4.8% Signature High Income Fund 4.7% Synergy Canadian Corporate Class 4.6% CI American Managers Corporate Class 4.2% Cambridge Income Corporate Class 3.9% Harbour Corporate Class 3.8% Cambridge Global Equity Corporate Class 3.4% Synergy American Corporate Class 3.2% Cambridge American Equity Corporate Class 3.2% CI American Small Companies Fund 3.2% Signature Emerging Markets Corporate Class 1.9% Cash 0.7% Top Ten Holdings Canada Gov t 4% 01Jun41 1.7% Toronto-Dominion Bank 0.8% U.S. Treasury Note 1.625% 15Nov21 0.7% Suncor Energy Inc. 0.7% CIBC 9.976% FRN 30Jun2108 0.7% Canadian National Railway Company 0.7% Bank of Nova Scotia 0.6% Canadian Western Bank 3.463% 17Dec24 0.6% Royal Bank of Canada 0.6% Intact Financial Corp. 0.6%
Transamerica CI Balanced Portfolio Portfolio Performance Transamerica CI Portfolios are available as Guaranteed Investment Portfolios within select Transamerica segregated funds contracts and as Managed Portfolio Index Interest Options within select Transamerica Universal Life Products. Segregated Fund Net Returns below are for the Transamerica Guaranteed Investment Funds (TGIF) product. Please refer to www.transamerica.ca for the returns on other products. The performance of the five Transamerica CI GIPs reflects fees that were not collected from January 1, 2013 to April 26, 2013. These fees were collected on May 1, 2013; therefore, the six-month net returns provided below are less than they would otherwise have been. 3 Months 6 Months 1 Year 3 Years Since Inception Inception Date 3.0% 2.1% 11.2% 5.1% 5.4% October 2009 On September 21, 2012, the Transamerica TOP GIPs began investing in a new portfolio managed by CI Investments. The Transamerica TOP GIPs are now referred to as Transamerica CI GIPs. Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. This report is designed to provide you with an up-to-date portfolio overview of the Transamerica CI Balanced Portfolio, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 25.9% 21.2% 16.1% 11.4% 9.0% 8.3% 4.0% 2.6% 1.5% U.S. equity Canadian bond Canadian equity European equity Foreign bond Cash Asian equity Emerging markets equity Other equity 37.3% 30.7% 15.4% 3.4% 3.1% 2.5% 2.5% 2.1% 1.6% 1.3% Canada U.S. Cash & Others Emerging markets U.K. Japan Germany Switzerland Australia France Equity Market Cap Equity Industry Sector 79.6% 17.3% 3.0% Large cap Mid-cap Small cap 24.0% 13.4% 13.0% 10.2% 10.0% 9.4% 9.3% 6.0% 2.7% 1.8% 0.2% Financial services Energy Industrials Health care Consumer discretionary Information technology Consumer staples Materials Utilities Telecommunications Other
Transamerica CI Canadian Balanced Portfolio Portfolio Commentary The portfolio gained 2.2% during the quarter, underperforming its benchmark (30% S&P/TSX Composite Index, 50% DEX Universe Bond Index, 20% MSCI World Index, C$), which rose 3.1%. The portfolio produced a strong gain due to positive contributions from the underlying equity and income funds. The income section benefited from its allocations to incomegenerating equities and high-yield bonds. The equity portion produced a strong return, although it lagged the broad market index due largely to underperformance of the Canadian equity funds. During the quarter, global bond markets gained following the U.S. Federal Reserve s decision not to cut back on its assetbuying program. Income-generating equities rebounded after Fed Chairman Ben Bernanke gave assurances that this key stimulus measure will be retained. The U.S. dollar weakened against the Canadian dollar and other major foreign currencies amid the prospect of continued stimulus. Global equity markets were propelled by Europe s emergence from recession and rising corporate profitability in the United States. Growth-oriented sectors such as industrials and information technology outpaced more defensive sectors. The resource-heavy S&P/TSX Composite Index received a boost from positive economic statistics from China that eased concerns over a significant slowdown in the world s secondlargest economy. Higher resources prices and continued monetary stimulus boosted emerging market equities. In the portfolio s income section, Cambridge Income Corporate Class and Signature High Income Fund were the largest contributors, benefiting from their exposure to a globally diversified basket of income-generating equities. High-yield bonds provided the best returns within the overall bond market due to the improving market sentiment that accompanied the Fed decision. The portfolio s interest rate risk is reduced through exposure to corporate bonds with shorter durations and higher yields, as well as to alternative sources of income such as highyielding equities that have lower sensitivity to interest rate movements. While we have exposure to bonds, the portfolio s overall duration remains low. A large portion of the portfolio s foreign currency exposure is strategically hedged back to the Canadian dollar, dampening volatility from currency movements. However, depending on the level of exchange rates, we will adjust the portfolio s exposure to foreign currencies to benefit from changing market valuations. We are continuing to favour corporate bonds, global bonds and currencies, while maintaining underweight allocations to Canadian government bonds. Having a diversified and flexible framework allows us to take advantage of changes in valuations in the market and continue providing steady income returns with low volatility. We expect to achieve modest growth and inflation protection through our allocation to high-quality dividend-paying equities. In the equity section, Cambridge Canadian Equity Corporate Class contributed to absolute performance, but underperformed the benchmark due to holdings in the energy sector, an overweight position in consumer staples and a significant cash position. The sector allocation of the portfolio s overall equity portion is more diversified than that of the Canadian economy and the S&P/TSX Composite Index, which has over 70% of its value concentrated in three sectors: energy, materials and financials. We continue to focus on company fundamentals and valuations to add value and avoid undue concentration in any one sector.
Transamerica CI Balanced Portfolio Among our U.S. equity funds, Cambridge American Equity Corporate Class was the best performer, benefiting from strong security selection in energy and financials. Overall, the U.S. portion favoured areas of the market that are tied to economic growth, including the industrials sector, while maintaining underweight positions in defensive sectors, such as consumer staples and utilities. In the international equity portion, Signature International Corporate Class made a positive contribution, but underperformed the benchmark due to holdings in financials and a high cash position. The international equity component had overweight allocations to information technology and consumer staples and underweight positions in financials and telecommunications services. Geographically, it had an overweight position in emerging markets, mainly in Asia and Latin America, and underweight allocations to the U.K., Australia, France and the peripheral countries of Europe. Our allocation to emerging markets contributed to performance, offsetting this sector s losses in the previous quarter. This was due in large part to positive economic data in China and the Fed s decision to maintain its economic stimulus. Our long-term outlook remains favourable for these countries, particularly China, where we expect to see businesses continuing to benefit from rising personal wealth and domestic consumption. Historically, emerging market equities have offered higher returns at the expense of additional volatility. While we expect this trade-off to continue, we believe the long-term rewards justify the risks. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Marchello Holditch, Senior Analyst Lewis Harkes, CFA, Senior Analyst Andrew Ashworth, Analyst
Transamerica CI Portfolios Portfolio Management Teams Aegon Capital Management (ACM) oversees more than $8 billion in institutional, third party and asset liability matching investments. ACM is backed by the strength of Aegon Asset Management which manages more than US$300 billion in assets. ACM s focus is to provide exceptional income and capital preservation solutions for our clients. Altrinsic Global Advisors, LLC follows a fundamental value approach in which the team seeks out high-quality undervalued companies worldwide. Founded by John Hock and associates, Altrinsic is based in Greenwich, Connecticut, and manages over US$13 billion in assets. Cambridge Global Asset Management manages over $8 billion in assets and is led by Chief Investment Officer Alan Radlo and Portfolio Managers Robert Swanson and Brandon Snow. Combined, they have over 70 years of investment experience and have managed a number of multi-billion-dollar mutual fund portfolios. Cambridge Global Asset Management is a division of CI Investments and has offices in Boston and Toronto. Epoch Investment Partners, Inc. is a New York-based investment management firm founded by Wall Street veteran William Priest and associates. Epoch uses a unique value-based approach that focuses on companies with superior shareholder yield. It manages over US$24 billion. Harbour Advisors, a division of CI Investments, is led by Portfolio Managers Stephen Jenkins and Roger Mortimer. Harbour s approach entails buying high-quality businesses at a sensible price, and following a patient, long-term outlook. Harbour manages over $12 billion. Signature Global Asset Management s advantage is its approach in which asset class and sector specialists combine their research to develop a comprehensive picture of a company and its securities. The team of 32 investment professionals is led by Chief Investment Officer Eric Bushell, who was named Morningstar Fund Manager of the Decade in 2010. Signature manages over $40 billion. Picton Mahoney Asset Management is a portfolio management firm led by David Picton and Michael Mahoney. The use of quantitative analysis is the foundation of their approach. Picton Mahoney maintains a disciplined focus on fundamental change, coupled with strong risk controls and portfolio construction techniques. The firm manages about $7 billion. Tetrem Capital Management is an employee-owned investment management firm founded by Chief Investment Officer Daniel Bubis. It is based in Winnipeg and has an office in Boston. Tetrem uses a disciplined investment approach to invest in undervalued Canadian and U.S. companies. The firm manages about $5 billion.
Strength and experience The Transmerica CI Portfolios are managed by CI Investments Inc. on behalf of Transamerica Life Canada. Transamerica Life Canada is a leading life insurance company in Canada. Through a number of distribution channels, resulting in a national network of thousands of independent advisors, Transamerica provides a full spectrum of individual life insurance and protection products, designed to help Canadians take responsibility for their financial future. Transamerica Life Canada is an Aegon company. CI Investments has been managing money for over four decades and today is one of Canada s largest investment fund companies. CI manages approximately $86 billion on behalf of two million Canadian investors. CI provides the industry s widest selection of investment funds and leading portfolio managers on a variety of platforms, including mutual and segregated funds, managed solutions and alternative investments. Aegon Capital Management (ACM) oversees more than $8 billion in institutional, third party and asset liability matching investments. ACM is backed by the strength of Aegon Asset Management which CI is a subsidiary of CI Financial Corp. (TSX: CIX), an independent, Canadian-owned wealth management firm with approximately $111 billion in assets as at September 30, 2013. manages more than US$300 billion in assets. ACM s focus is to provide exceptional income and capital preservation solutions for its clients.
For more information on Transamerica CI Portfolios, please contact your advisor or visit www.transamericaciportfolios.com. All commentaries are published by CI Investments Inc., CI Investments Inc. is the Manager of all the funds described herein, other than Aegon Capital Management Canadian Bond Pool which is managed by Aegon Capital Management. The commentaries are provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in the commentaries is accurate at the time of publication. However, CI Investments Inc. cannot guarantee their accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. SUBJECT TO ANY APPLICABLE DEATH AND MATURITY GUARANTEE, ANY PART OF THE PREMIUM OR OTHER AMOUNT THAT IS ALLOCATED TO A SEGREGATED FUND IS INVESTED AT THE RISK OF THE CONTRACT HOLDERS AND MAY INCREASE OR DECREASE IN VALUE ACCORDING TO FLUCTUATIONS IN THE MARKET VALUE OF THE ASSETS OF THE SEGREGATED FUND. If you wish to obtain a copy of the simplified prospectus and/or financial statements of any of the underlying funds, please contact the appropriate mutual fund company. Transamerica Life Canada is the issuer and guarantor of the Transamerica CI Guaranteed Investment Portfolio contract. CI Investments, the CI Investments design, Synergy Mutual Funds, Harbour Advisors, Harbour Funds, Cambridge and American Managers are registered trademarks of CI Investments Inc. Signature Funds and Signature Global Asset Management are trademarks of CI Investments Inc. Cambridge Global Asset Management is the business name of CI Global Invesments Inc. Certain portfolio managers of Cambridge Global Asset Management are registered with CI Investments Inc. Aegon and the Aegon logo are registered trademarks of Aegon N.V. Canada ULC and its affiliated companies are licensed to use such marks. Transamerica and the pyramid design are registered trademarks of Transamerica Corporation. Transamerica Life Canada is licensed to use such marks. Published October 2013. 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I www.ci.com Head Office / Toronto 416-364-1145 1-800-268-9374 Calgary 403-205-4396 1-800-776-9027 Montreal 514-875-0090 1-800-268-1602 Vancouver 604-681-3346 1-800-665-6994 Client Services English: 1-800-563-5181 French: 1-800-668-3528 1310-1748_E (10/13)